U.S. Commercial Paper Market Declines for Third Week, Fed Says

By John Parry -
Mar 21, 2013

The market for corporate borrowing
through short-term IOUs contracted for a third week, led by a
fall in issuance from nonfinancial companies as firms chose to
issue corporate bonds at almost the lowest borrowing costs.

The seasonally adjusted amount of U.S. commercial paper
fell $1.6 billion to $1.016 trillion outstanding in the week
ended yesterday, the Federal Reserve said today on its website.
That’s the lowest level since the market touched $997.9 billion
for the period ended Nov. 21.

Companies are favoring bonds to obtain longer-term, stable
funding with yields at almost record lows, in preference to
shorter-term financing via shorter-term commercial paper.

“The key driver once again seems to be the terming out of
short-term debt into the corporate-bond market to lock in low
rates for a longer period of time without incurring rollover
risk,” Howard Simons, strategist at Bianco Research LLC in
Chicago, wrote in an e-mail. “I would expect similar and larger
contractions to occur the next time there is speculation over an
eventual end to the era of artificially low short-term rates.”

IOUs issued by nonfinancial companies declined for a fourth
week, dropping $11.5 billion to $200.8 billion, the least since
the period ended Nov. 21. Corporations sell commercial paper,
typically maturing in 270 days or less, to fund everyday
activities such as rent and salaries.